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The U.S. Court of Appeals for the Federal Circuit has overturned a widely criticized precedent, drawing applause from patent lawyers. The decision eliminated a 20-year-old rule that punished defendants for declining to reveal the contents of a legal opinion analyzing their patent rights during a trial. Questions remain as to how the decision will affect future cases. The old rule required a judge or jury to draw a negative inference against defendants who declined to turn over legal opinions when adjudicating claims of willful infringement. This forced defendants either to reveal information protected by the attorney-client privilege or to suffer from the negative inference. The threat of treble damages, which are available in willful-infringement claims, added to their dilemma. The Federal Circuit followed an unusual procedure in voluntarily deciding to hear the case en banc. The court’s call for amicus briefs resulted in two dozen from local bar associations, intellectual property groups, the Securities Industry Association and national organizations, including the American Bar Association. The groups supported abandoning the doctrine. The court agreed and in a 10-1 opinion by Judge Pauline Newman overturned the rule. “[T]he inference that withheld opinions are adverse to the client’s actions can distort the attorney-client relationship, in derogation of the foundations of that relationship,” she said. Knorr-Bresme Systeme v. Dana Corp and Haldex Brake, 01-1357, involved patents related to air-disc brakes used in large trucks. In a bench trial, a district court in Virginia found that defendant Haldex Brake willfully infringed Knorr’s patents. Willful infringement places a higher burden of proof on plaintiffs but if proven can lead to treble damages, attorney fees and other punitive measures. Citing attorney-client privilege, Haldex Brake declined to hand over legal opinions it had obtained from European and American lawyers. Following the established rule, the Virginia judge inferred that these opinions laid out inculpatory conclusions. REASONS FOR RULE The Federal Circuit, in Washington, D.C., had established the adverse inference to curb abusive infringement. The original purpose of the rule was to urge parties to take reasonable measures, such as obtaining legal opinions, to avoid trampling on the rights of patent-holders. In some instances, parties would obtain an opinion exactly for this purpose, said Ellen Efros, an intellectual property lawyer from the Washington office of Rader, Fishman & Grauer, who represented the defendants in the case. But in many instances, she said, “the purpose of the opinion was to answer the negative inference” for a potential trial. Parties generally obtained these opinions after receiving a warning of infringement from a patent holder, she said. This led to a “cottage industry of bullet-proof opinions” prepared exclusively for litigation, said Knorr’s attorney, Jeffrey Sanok of Crowell & Moring’s Washington office. Instead of obtaining candid opinions from legal counsel, he said, parties would receive carefully crafted opinions they could divulge in court to combat the negative inference. “It had the patent community up in arms,” said Sanok, because it prevented candid communications between attorneys and clients and placed them in a no-win situation. Haldex Brake’s lawyer, Stanley Lieberstein of St. Onge Steward Johnston & Reens in Stamford, Conn., put it another way: “You’re damned if you do, you’re damned if you don’t.” A candid opinion, he said, could be vulnerable to attack by plaintiffs, particularly because it was written without the benefit of the breadth of information revealed during a trial. If the defendant declined to disclose this opinion, he said, then it would face the consequences of the negative inference. ATTORNEY-CLIENT PRIVILEGE If the defendant waived the attorney-client privilege and disclosed the opinion, said Sanok, it opened up a pandora’s box. Ancillary litigation could erupt over the scope of the waiver, he said, raising issues such as whether the waiver included the opinion or other communications between attorneys and clients and whether attorney work product generated in producing the opinion also fell within the waiver. In its ruling this week, the Federal Circuit said the adverse inference rule could no longer be sustained by its “conceptual underpinnings.” “There should be no risk of liability in disclosures to and from counsel in patent matters; such risk can intrude upon full communication and ultimately the public interest in encouraging open and confident relationships between client and attorney,” Judge Newman wrote. The effect of the ruling on patent litigation is the “million dollar question right now,” said Sanok. One scenario arises if a plaintiff brings up the existence of an opinion letter to jurors. A defendant will no longer face a negative inference by electing to withhold this opinion. But patent attorneys said they are concerned that the jury will look at the move unfavorably, just as they often construe a criminal defendant’s decision to not testify despite judicial instructions to the contrary. Lieberstein said he hopes plaintiffs will be barred from introducing the issue to the jury in any context to avoid this inference. Knorr has not yet decided whether it will appeal the ruling.

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